Study Guide · Chapter 29
Static GK and Glossary of Insurance Terms
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How to Use This Chapter
Static general knowledge and terminology form a distinct scoring opportunity in the LIC AAO insurance-awareness section, separate from questions that test conceptual understanding of principles, products, or regulation. These questions tend to reward precise recall — the exact meaning of a term, the year an institution was founded, the correct expansion of an abbreviation — rather than analytical reasoning. This chapter is built as a working reference: a large glossary table covering the vocabulary of insurance that recurs across this entire book, followed by a compact table of key organisations and their founding years. Read the glossary once in sequence to build familiarity, then return to it for quick revision in the days before the exam. Terms are grouped loosely by theme within the table so that related concepts sit near each other, which tends to aid recall better than a strict alphabetical listing.
Glossary of Insurance Terms
| Term | Definition |
|---|---|
| Premium | The amount a policyholder pays to the insurer, periodically or as a lump sum, in exchange for insurance cover |
| Sum Assured | The guaranteed amount payable by a life insurer on death or maturity, as fixed at the time the policy is issued |
| Sum Insured | The maximum amount payable under a general or health insurance policy in the event of a covered loss |
| Policyholder | The person who owns the insurance policy and is generally responsible for paying the premium |
| Life Assured | The person whose life is covered under a life insurance policy; may be the same person as the policyholder or a different person |
| Nominee | The person named by the policyholder to receive the policy benefit on the life assured's death, holding the proceeds as a trustee for the legal heirs unless also a beneficial nominee under law |
| Assignment | The legal transfer of rights, title, and interest in a policy from the policyholder to another person, often used to secure a loan |
| Beneficiary | The person entitled to receive the policy proceeds; may differ from the nominee depending on succession law and the nature of the nomination |
| Grace Period | The additional time allowed after the premium due date, during which the policy remains in force and the policyholder can pay the premium without penalty |
| Free-Look Period | A short window after receiving the policy document during which the policyholder may cancel the policy and receive a refund if dissatisfied with its terms |
| Lapse | The termination of a policy's benefits because the premium was not paid within the grace period |
| Revival | The process of restoring a lapsed policy to full force, usually requiring payment of overdue premiums with interest and, sometimes, fresh proof of insurability |
| Surrender | The voluntary termination of a policy by the policyholder before maturity, in exchange for a surrender value |
| Surrender Value | The amount payable to the policyholder on surrendering a policy before it matures, generally lower than the total premiums paid, especially in early policy years |
| Paid-Up Value | A reduced sum assured that remains payable on a policy where premiums have stopped after a minimum number of years, without the policyholder formally surrendering the policy |
| Maturity Benefit | The amount payable to the policyholder when a policy completes its full term without a claim having arisen earlier |
| Death Benefit | The amount payable to the nominee or beneficiary on the death of the life assured during the policy term |
| Bonus | A share of surplus declared by a life insurer and added to a participating policy's benefit, reflecting the insurer's actual experience versus assumptions |
| Reversionary Bonus | A bonus added to a participating policy each year, which becomes payable along with the sum assured only on death or maturity, not immediately |
| Terminal Bonus | An additional bonus paid at maturity or on death, over and above accumulated reversionary bonuses, reflecting the insurer's long-term investment performance |
| Participating Policy | A policy under which the policyholder shares in the insurer's surplus through bonuses |
| Non-Participating Policy | A policy that does not share in the insurer's surplus; benefits are fixed and guaranteed at the outset |
| Rider | An optional add-on benefit attached to a base policy for additional premium, extending cover to specific risks not covered by the base plan |
| Underwriting | The process by which an insurer assesses and classifies the risk presented by a proposer before deciding whether, and on what terms, to accept the risk |
| Proposal Form | The application form completed by a prospective policyholder, containing personal, health, financial, and other details used for underwriting |
| Moral Hazard | The risk that a person's behaviour changes, or that a person misrepresents facts, because they hold insurance, increasing the likelihood or size of a claim |
| Morale Hazard | Carelessness or indifference toward loss prevention that arises simply because a person knows they are insured, distinct from deliberate misrepresentation |
| Adverse Selection | The tendency of individuals with higher-than-average risk to seek insurance more often than those with lower risk, potentially skewing an insurer's risk pool if not managed through underwriting |
| Insurable Interest | A financial or legally recognised interest that a person must have in the subject matter of insurance, without which an insurance contract is not valid |
| Utmost Good Faith (Uberrima Fides) | The principle requiring both parties to an insurance contract to disclose all material facts honestly and completely |
| Material Fact | Any fact that would influence a prudent insurer's decision to accept a risk or to fix the premium and terms |
| Indemnity | The principle, applicable mainly to general insurance, that compensation should restore the insured to the same financial position as before the loss, no more and no less |
| Contribution | The principle allowing an insurer who has paid a claim under a policy also covered by another insurer to recover a proportionate share from the other insurer |
| Subrogation | The right of an insurer, after paying a claim, to step into the insured's shoes and pursue recovery from a third party responsible for the loss |
| Proximate Cause | The dominant, effective cause of a loss, used to determine whether a loss falls within the scope of cover when multiple causes are involved |
| Warranty (Insurance) | A condition in an insurance contract that must be strictly complied with; breach of warranty can void the insurer's liability regardless of whether the breach caused the loss |
| Endorsement | A written amendment to an insurance policy that changes its terms after issuance, such as adding a rider or correcting a detail |
| Cover Note | A temporary document confirming that insurance cover has commenced, issued pending preparation of the full policy document, common in general insurance |
| Policy Schedule | The section of a policy document that lists the specific details of that policyholder's cover — names, sum assured, premium, term, and similar particulars |
| Exclusion | A specific circumstance, cause, or condition that a policy explicitly does not cover |
| Waiting Period | An initial period after a policy starts during which certain claims, typically for pre-existing conditions in health insurance, are not payable |
| Deductible | A fixed amount the policyholder must bear out of pocket before the insurer's payment obligation begins |
| Co-payment | A fixed percentage of a claim amount that the policyholder must bear, commonly used in health insurance |
| Third-Party Administrator (TPA) | An entity licensed by IRDAI to process health insurance claims and provide cashless facilitation on behalf of insurers |
| Cashless Facility | An arrangement allowing a policyholder to receive treatment at a network hospital without paying upfront, with the insurer settling the bill directly |
| Reimbursement Claim | A claim where the policyholder first pays for treatment or loss and then seeks repayment from the insurer |
| Third-Party Insurance | Insurance that covers the insured's legal liability toward a third party, as distinct from cover for the insured's own loss; compulsory for motor vehicles in India |
| Own Damage Cover | Motor insurance cover for damage to the insured's own vehicle, as distinct from third-party liability cover |
| No-Claim Bonus (NCB) | A discount on renewal premium offered to a policyholder who has not made a claim during the preceding policy period, common in motor insurance |
| Total Loss / Total Constructive Loss | A situation where the insured property is completely destroyed, or where the cost of repair exceeds the value of the property, treated as a total loss for claim purposes |
| Actuary | A professional trained in the mathematics of risk, mortality, and finance, responsible for pricing products, valuing reserves, and certifying an insurer's financial soundness |
| Appointed Actuary | The actuary statutorily responsible within an insurance company for certifying reserves, recommending bonus rates, and ensuring sound pricing |
| Mortality Table | A statistical table showing the probability of death at each age, used as a foundation for pricing life insurance and annuities |
| Morbidity | The incidence and pattern of illness or disability within a population, relevant to pricing health insurance and disability riders |
| Persistency Ratio | The percentage of policies or premium remaining in force after a stated duration from the date of issue |
| Claim Settlement Ratio | The percentage of claims an insurer settles during a year out of the total claims that fell due for payment |
| Solvency Margin | The excess of an insurer's assets over its liabilities, required as a cushion to meet obligations under adverse conditions |
| Solvency Ratio | The ratio of an insurer's Available Solvency Margin to its Required Solvency Margin |
| Actuarial Liability | The reserve an insurer must hold, calculated by actuarial valuation, to meet its future obligations to existing policyholders |
| Reinsurance | Insurance purchased by an insurer from another insurer to spread and reduce its own risk exposure |
| Retention | The portion of a risk that an insurer keeps for its own account, rather than ceding to a reinsurer |
| Treaty Reinsurance | A standing reinsurance arrangement automatically covering a defined category of risks the ceding insurer writes |
| Facultative Reinsurance | Reinsurance negotiated separately for a specific individual risk, rather than under a standing treaty |
| Ceding Insurer | The original insurer that transfers part of a risk to a reinsurer |
| Retrocession | Reinsurance purchased by a reinsurer from another reinsurer, effectively "reinsurance of reinsurance" |
| Bancassurance | The distribution of insurance products through a bank's branch network and customer base, under a tie-up between a bank and an insurer |
| Micro-Insurance | Low-premium, low-sum-assured insurance products designed for low-income groups, aimed at expanding financial inclusion |
| Ombudsman (Insurance) | A quasi-judicial authority set up to resolve policyholder grievances against insurers quickly and free of cost, without the need for formal litigation |
| Grievance Redressal | The overall system and process, both within an insurer and through external bodies like the Ombudsman and IRDAI, for resolving policyholder complaints |
| Annuity | A series of periodic payments made to an individual, typically in retirement, in exchange for a lump sum paid earlier to the insurer |
| Immediate Annuity | An annuity where payments begin almost immediately after a lump sum is paid to the insurer, without a deferment period |
| Deferred Annuity | An annuity where payments begin only after a specified deferment period following the initial premium payment |
| Vesting Age | The age at which a pension or deferred annuity policy's accumulated benefits become payable to the policyholder |
| Unit-Linked Insurance Plan (ULIP) | A life insurance product that combines insurance cover with investment in market-linked funds, with the policyholder bearing investment risk on the fund portion |
| Net Asset Value (NAV) | The per-unit value of a ULIP fund on a given date, used to allocate and redeem units |
| Fund Switching | The facility in a ULIP allowing a policyholder to move accumulated value between different fund options offered under the plan |
| Top-Up Premium | An additional, voluntary premium payment made into a ULIP over and above the regular premium, subject to regulatory limits |
| Whole Life Policy | A life insurance policy that provides cover for the entire lifetime of the life assured, rather than for a fixed term |
| Term Insurance | A pure protection life insurance policy that pays the sum assured only on death within the policy term, with no maturity benefit if the life assured survives the term |
| Endowment Policy | A life insurance policy that pays the sum assured (plus bonuses, if participating) either on death during the term or on survival to maturity |
| Money-Back Policy | An endowment-type policy that pays a portion of the sum assured periodically during the term as survival benefits, with the balance paid at maturity |
| Group Insurance | A single policy covering a defined group of people, such as employees of an organisation, typically at lower cost than individual policies |
| Keyman Insurance | A life insurance policy taken out by a business on the life of a key employee or owner, to protect the business against financial loss from that person's death |
| Reinstatement | Another term for the revival of a lapsed policy to restore its benefits |
| Days of Grace | An alternate term for the grace period allowed for premium payment |
| First Premium Receipt (FPR) | The receipt issued for the first premium paid on a policy, evidencing that the risk cover has commenced |
| Renewal Premium | Premiums payable after the first premium, for continuation of an in-force policy |
| Loading | An addition to the standard premium charged to a proposer assessed as a higher-than-standard risk |
| Rebate | A reduction in premium sometimes offered for factors such as high sum assured or mode of payment, distinct from a bonus |
| Policy Term | The duration for which a life insurance policy provides cover |
| Premium Paying Term | The number of years for which premiums must be paid, which may be shorter than the full policy term in a limited-pay plan |
| Single Premium Policy | A policy under which the entire premium is paid as one lump sum at inception, rather than in periodic instalments |
| Regular Premium Policy | A policy under which premiums are paid periodically (annually, half-yearly, quarterly, or monthly) throughout the premium paying term |
| Free Cover Limit | The sum assured level up to which a group insurance scheme member is covered without individual medical underwriting |
| Portability | The facility allowing a health insurance policyholder to switch insurers while retaining continuity benefits such as waiting-period credit |
| Pre-Existing Disease (PED) | A health condition the policyholder had before the policy commenced, typically subject to a specific waiting period before cover applies |
| Floater Policy | A health insurance policy where a single sum insured is shared across all covered family members, rather than each member having a separate sum insured |
| Rural and Social Sector Obligations | IRDAI-mandated minimum quotas requiring insurers to underwrite a specified proportion of business from rural areas and identified social sector groups |
| Corporate Agent | A company, bank, or other entity licensed by IRDAI to distribute insurance products of one or more insurers, as distinct from an individual agent |
| Insurance Broker | An intermediary licensed by IRDAI who represents the policyholder's interest and can place business with multiple insurers, unlike an agent who represents an insurer |
| Point of Sales Person (POSP) | A category of simplified, lightly trained insurance-selling intermediary permitted by IRDAI to sell specified standard, easy-to-understand products |
| Web Aggregator | An IRDAI-licensed entity that displays and compares insurance products from different insurers online, facilitating informed purchase |
| KYC (Know Your Customer) | The verification of a customer's identity and address, mandatory before certain insurance transactions, in line with anti-money-laundering norms |
| Free Look Cancellation | Cancellation of a policy by the policyholder within the free-look period, with the insurer refunding premium after specified deductions |
| Insurance Repository | An IRDAI-regulated entity that holds insurance policies in electronic (dematerialised) form, similar to how depositories hold securities |
| e-Insurance Account | An electronic account maintained with an insurance repository in which a policyholder can hold multiple insurance policies in dematerialised form |
| Catastrophe Reserve | A reserve set aside by an insurer for extraordinary, correlated loss events such as pandemics or major natural disasters |
| Parametric Insurance | Insurance that pays out based on a predefined trigger event (such as rainfall below a threshold) rather than on assessed actual loss |
| Insurtech | The use of technology and data analytics to improve insurance distribution, underwriting, and claims processing |
| Protection Gap | The difference between the economic losses a population faces from insurable risks and the portion of those losses actually covered by insurance |
| Insurance Penetration | Total insurance premium expressed as a percentage of a country's Gross Domestic Product |
| Insurance Density | Total insurance premium per capita, usually expressed in US dollars, in a given country |
Key Organisations and Their Founding Years
| Organisation | Year Established | Significance |
|---|---|---|
| Oriental Life Insurance Company | 1818 | Widely regarded as the first life insurance company established in India, in Calcutta |
| Bombay Mutual Life Assurance Society | 1870 | The first Indian life insurance company to cover Indian lives at standard rates without discriminatory loading |
| Life Insurance Corporation of India (LIC) | 1956 | Formed by nationalising and merging over two hundred private life insurers and provident societies under the LIC Act, 1956 |
| General Insurance Corporation of India (GIC) | 1972-73 | Formed on nationalisation of general insurance business, with operations from 1 January 1973; later repositioned as India's national reinsurer |
| Insurance Institute of India | 1955 | The apex professional education and examination body for insurance in India, formerly known as the Federation of Insurance Institutes |
| Institute of Actuaries of India | 1944 (as Actuarial Society of India; renamed and reconstituted later) | India's professional body for actuaries, granting the Fellowship qualification recognised for actuarial roles in insurance |
| Insurance Regulatory and Development Authority (IRDA) | 1999 (statutory); interim authority from 1996 | Established under the IRDA Act, 1999, as India's insurance regulator; later renamed IRDAI |
| Deposit Insurance and Credit Guarantee Corporation (DICGC) | 1978 (formed by merger of earlier deposit insurance and credit guarantee bodies) | Wholly owned subsidiary of the Reserve Bank of India providing deposit insurance to bank depositors, distinct from IRDAI's domain |
| International Association of Insurance Supervisors (IAIS) | 1994 | Global standard-setting body for insurance supervision |
| Employees' State Insurance Corporation (ESIC) | 1952 | Administers the Employees' State Insurance scheme, a social security and health insurance scheme for organised-sector workers |
Frequently Confused Term Pairs
A number of insurance terms are frequently confused with one another in objective-type questions, often because they sound similar or apply to overlapping situations. Reviewing these pairs side by side is a high-value use of revision time.
| Term A | Term B | Key Distinction |
|---|---|---|
| Nomination | Assignment | Nomination designates who receives policy proceeds on death, without transferring ownership; assignment transfers actual rights and title in the policy to another party |
| Surrender Value | Paid-Up Value | Surrender value is paid immediately on giving up the policy; paid-up value is a reduced sum assured that stays payable later, on death or maturity, without further premiums |
| Moral Hazard | Adverse Selection | Moral hazard concerns behaviour or misrepresentation after or because of holding insurance; adverse selection concerns who chooses to buy insurance in the first place |
| Indemnity | Life Insurance Payout | Indemnity (general insurance) restores actual financial loss; life insurance pays a pre-agreed sum assured regardless of the financial loss actually suffered by dependants |
| Reinsurance | Retrocession | Reinsurance is risk transfer from an insurer to a reinsurer; retrocession is risk transfer from one reinsurer to another reinsurer |
| Insurance Agent | Insurance Broker | An agent represents and is tied to one insurer (or a limited set under corporate agency); a broker represents the customer and can place business across insurers |
| Grace Period | Free-Look Period | Grace period is extra time to pay a renewal premium without lapse; free-look period is a window to cancel a newly issued policy for a refund |
| Cashless Claim | Reimbursement Claim | Cashless means the insurer settles directly with the hospital; reimbursement means the policyholder pays first and claims repayment afterward |
| Sum Assured | Sum Insured | Sum assured is used for life insurance (a fixed guaranteed benefit); sum insured is used for general/health insurance (the maximum indemnifiable amount) |
| Solvency Margin | Solvency Ratio | Solvency margin is the absolute excess of assets over liabilities; solvency ratio expresses available margin as a ratio to the required margin |
Common Abbreviations in Insurance
| Abbreviation | Full Form |
|---|---|
| LIC | Life Insurance Corporation of India |
| GIC | General Insurance Corporation of India |
| IRDAI | Insurance Regulatory and Development Authority of India |
| ULIP | Unit-Linked Insurance Plan |
| NAV | Net Asset Value |
| TPA | Third-Party Administrator |
| NCB | No-Claim Bonus |
| PED | Pre-Existing Disease |
| POSP | Point of Sales Person |
| FPR | First Premium Receipt |
| DICGC | Deposit Insurance and Credit Guarantee Corporation |
| ESIC | Employees' State Insurance Corporation |
| IAIS | International Association of Insurance Supervisors |
| IAA | International Actuarial Association |
| FSAP | Financial Sector Assessment Program |
| RSM | Required Solvency Margin |
| ASM | Available Solvency Margin |
| KYC | Know Your Customer |
Chapter Summary
- This chapter's glossary covers the full working vocabulary of insurance terms used throughout this book, from basic policy terms (sum assured, premium, grace period) to technical concepts (actuarial liability, solvency margin, reinsurance).
- Key organisational founding years worth memorising include LIC (1956), GIC (1972-73), the Insurance Institute of India (1955), and IRDA's statutory establishment (1999).
- Frequently confused term pairs — nomination versus assignment, surrender value versus paid-up value, moral hazard versus adverse selection, agent versus broker — are a common source of avoidable errors and deserve focused revision.
- Static-GK questions reward precise recall; use this chapter as a final revision reference in the days before the exam, alongside the more conceptual chapters earlier in the book.
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